Wednesday, August 26, 2009

If we want to change the world – we can… we just have to think we can. Kaupthinking was beyond thinking…

I used to look at awed wonder at the insanity of Icelandic banks – but I never heard of this advert (for Kaupthing Bank) until after the collapse and the destruction of Iceland’s economy and I saw it for the first time only recently. It spreads virally amongst finance types – but I think it will be new to my Talking Points Memo readers…

Kaupthing was – I believe – the worst bank in the whole crisis… and has since been shown to be corrupt. But a good proportion of the employees really believed that they were doing something worthwhile which says more about cults than banking (except in as much as modern financial practice is littered with cult-followers).

Finally – I note with fear that the bank doubled in size in a year – every year for 8 years. I considered shorting Kaupthing several times – but did not (in part because of the cost and difficulty of borrowing the shares). Banks like Kaupthing might be insane criminal organisations – but they were also impossible to short because they might stay solvent longer than you… Three doublings and your short has become very painful – even if you are paid in the end. Add to that a 25 percentage point borrow cost for the shares and there was little chance of making money unless you shorted right at the end. Oh, and your profit (if any) was realised in Icelandic Krona – and they turned out to be worth much less than you would have hoped. It is hard to make money of this stuff – even when the end-outcome is obvious.

Being from Ireland, I couldn't help notice (with due attention to irony) that an Irish band's music played in the background. Of course, Irish banks and society employed, and still do to this day, the very same 'thinking' and logic. Irish banks are bankrupt (as is all moral authority) and have been on life support for over a year.

The govt, the orchestrator of the this conficence tricksterism, has come up with a rescue plan that offlays all responsibity, costs and future risk onto the tax payer. They are about to relaunch the same bankers and I'm sure auld Bono will only be too happy to supply the background music - for a hefty fee - of course.

Meanwhile, at least the Icelandic people, who face immediate financial ruin, have hired an international investigator to find the culprits and bring them to justice. However, I think it will be hard to quantify and criminalise stupidty - especially when an entire nation endulged in self decption and dellusion such as Ireland did. Better luck to the Icelanders!

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